Objection To Execution Of Arbitration Award U/S. 47 CPC Not Dependent Or Contingent Upon Filing Petition U/S 34 A&C Act: Supreme Court
The Supreme Court reiterated that at the stage of execution, an objection as to executability of the decree can be raised but such objection is limited to the ground of jurisdictional infirmity or voidness.
Justice Abhay S. Oka, Justice Ujjal Bhuyan, Supreme Court
The Supreme Court held that an objection to execution of an Arbitration award under Section 47 of the Civil Procedure Code, 1908 (CPC) is not dependent or contingent upon filing a Petition under Section 34 of the Arbitration and Conciliation Act, 1996.
The Court held thus in a Civil Appeal preferred by a steel company against the Judgment of the Jharkhand High Court.
The two-Judge Bench of Justice Abhay S. Oka and Justice Ujjal Bhuyan observed, “Objection to execution of an award under Section 47 CPC is not dependent or contingent upon filing a petition under Section 34 of the 1996 Act. High Court was not justified in taking the view that since the appellant did not file a petition under Section 34 of the 1996 Act, therefore, it was precluded from filing an application before the Executing Court to declare the award as void and hence non executable.”
The Court reiterated that at the stage of execution, an objection as to executability of the decree can be raised but such objection is limited to the ground of jurisdictional infirmity or voidness.
Senior Advocate Gopal Jain represented the Appellant while AOR Sameer Kumar represented the Respondent.
Facts of the Case
The Appellant had filed a Petition before the Jharkhand High Court under Article 227 of the Constitution, assailing the Order of the Commercial Court which had dismissed the Appellant’s Application. In 2014, the Respondent filed Claim Petitions before the West Bengal Micro, Small and Medium Facilitation Council under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act). As per the requirement of the MSME Act, conciliation proceedings were initiated but attempt for conciliation failed. Thereafter, the arbitration proceedings were commenced in 2017. The financial creditors of the Appellant invoked Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal, Kolkata Bench (NCLT). The NCLT imposed moratorium and an interim resolution professional (IRP) was appointed. The IRP issued a public announcement calling upon all the creditors to submit their claims before him. Resultantly, the arbitration proceedings were kept in abeyance. The Respondent filed a claim before the RP who partly admitted its claim.
Thereafter, a Resolution Plan was submitted before the NCLT wherein all the claims of operational creditors were settled at nil value. However, the Respondent’s claim was not included in the same and it was approved by NCLT. No Appeal was preferred by the Respondent but the NCLT’s Order was challenged before the NCLAT (National Company Law Appellate Tribunal) by some of the operational creditors. Their Appeals were dismissed and the matter was carried forward to the Apex Court but the Court dismissed the Appeal. Consequently, arbitral proceedings resumed and an award was passed which directed the Appellant to pay a sum of ₹ 1,59,09,214/- along with interest to the Respondent in terms of Section 16 of the MSME Act. The said award was not challenged and the Respondent instituted execution proceeding and at that time, the Appellant filed a Petition contending that the award was a nullity. The Executing Court dismissed the Appellant’s Petition and directed it to comply with the award. This was challenged before the High Court which dismissed the Appellant’s Petition. Hence, the case was before the Apex Court.
Reasoning
The Supreme Court after hearing the contentions of the counsel, noted, “High Court is correct in answering the first issue that a plea of nullity qua an arbitral award can be raised in a proceeding under Section 47 CPC but such a challenge would lie within a very narrow compass.”
The Court elucidated that in terms of Section 36 of the A&C Act, an award can be enforced in accordance with the provisions of CPC in the same manner as if it were a decree of a Civil Court.
“Execution of decrees and orders is provided for in Order XXI CPC. … The law laid down by this Court in Vasudev Dhanjibhai Modi Vs. Rajabhai Abdul Rehman9 is that only a decree which is a nullity can be the subject matter of objection under Section 47 CPC and not one which is erroneous either in law or on facts. The aforesaid proposition of law continues to hold the field”, it further said.
The Court reiterated that once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, all claims which are not part of the resolution plan shall stand extinguished and no person will be entitled to initiate or continue any proceeding in respect to a claim which is not part of the resolution plan.
“In fact, this Court in Essar Steel India Ltd. (supra) had categorically declared that a successful resolution applicant cannot be faced with undecided claims after the resolution plan is accepted. Otherwise, this would amount to a hydra head popping up which would throw into uncertainty the amount payable by the resolution applicant”, it also remarked.
The Court was of the view that the three authorities conducting the corporate insolvency resolution process (CIRP) did not deem it appropriate to include the Respondent in the top 30 operational creditors.
“If the claims of the top 30 operational creditors were settled at nil, it goes without saying that the claim of the respondent could not be placed higher than the said top 30 operational creditors. Moreover, the resolution plan itself provides that all claims covered by any suit, cause of action, arbitration etc. shall be settled at nil. Therefore, it is crystal clear that in so far claim of the respondent is concerned, the same would be treated as nil at par with the claims of the top 30 operational creditors”, it added.
Furthermore, the Court observed that lifting of the moratorium does not mean that the claim of the Respondent would stand revived notwithstanding approval of the resolution plan by the adjudicating authority.
“Moratorium is intended to ensure that no further demands are raised or adjudicated upon during the corporate insolvency resolution process so that the process can be proceeded with and concluded without further complications. View taken by the High Court cannot be accepted in the light of the clear cut provisions of the IBC as well as the law laid down by this Court”, it said.
The Court, therefore, held that the Facilitation Council did not have the jurisdiction to arbitrate on the said claim and since the award was passed without jurisdiction, the same could be assailed in a proceeding under Section 47 CPC.
“… we have no hesitation to hold that upon approval of the resolution plan by the NCLT, the claim of the respondent being outside the purview of the resolution plan stood extinguished. Therefore, the award dated 06.07.2018 is incapable of being executed”, it concluded.
Accordingly, the Apex Court allowed the Appeal and set aside the impugned Order.
Cause Title- Electrosteel Steel Limited (Now M/s ESL Steel Limited) v. Ispat Carrier Private Limited (Neutral Citation: 2025 INSC 525)
Appearance:
Appellant: Senior Advocate Gopal Jain, Advocates Anusuya Sadhu Sinha, Priyanka Goswami, and Siddharth Naidu.
Respondent: AOR Sameer Kumar, Advocates Rajnish Kalawatia, Mandeep Baisala, and Somi Sharma.
